According to the March 2017 Bank of Botswana Business Expectations Survey (BES), slow growth in both government spending and a constrained domestic demand, have continued to haunt business confidence. The latest BES results reflect similar findings to the previous survey which also highlighted a constrained domestic demand and government spending. The key indicators were ranked as the first and second most significant challenges facing businesses due to perceived slow growth in both government spending and household disposable income. BES collects information on the local business community’s perceptions on the prevailing state of the economy and economic prospects.
The latest survey found that the next ranked impediments to business operations are the exchange rate changes and unavailability of skilled labour, especially the difficulties encountered in recruiting foreign labour. “This is also one of the areas that are highlighted among the main challenges to doing business in Botswana,” the survey notes.
Despite the challenges, overall business confidence increased from 43 percent in September 2016 to 48 percent in March 2017. “Looking ahead, there is an increase in optimism, despite subdued demand in the domestic and global markets, which continues to threaten business confidence. Inflation expectations appear to be firmly anchored within the Bank of Botswana’s medium-term objective range, suggesting that the business community views the Bank’s policy pronouncements as credible.”
The survey discloses that 80 percent of business expects to utilise at least half of their productive capacity in the first half of 2017 compared to 85 percent in September 2016, consistent with the downward revision in expectations on levels of production, volume of sales and profitability in the first half of 2017.
The business community will prefer borrowing from South Africa in the second half of 2017 and in the 12-month period to June 2018. On the other hand, the survey found more firms are sceptical about domestic borrowing, as reflected in a net balance of -4.9 percent in the first half of 2017 (H1), which worsens to -12.8 percent in the longer horizon, second half (H2) of 2017 to first half of 2018. The BES says this partly explains the decline in growth of business credit by domestic commercial banks during the first quarter of 2017. BES reveals that the findings are contrary to the anticipated reduction in domestic interest rates by the business community, which is consistent with the reduction in the Bank Rate from 6 percent to 5.5 percent since August 2016.
“However, sentiment about easy access to domestic credit remains weak, worsening from a net balance of 9 percent in the second half of 2016 to 6 percent in the first half of 2017,” it indicates further, explaining that the findings explain weaker expectations on domestic borrowing. In general, BES states that business sentiment about access to finance has improved, with the net balance of those viewing it as firm declining slightly from 44.9 percent in H2:2016 to 43.4 percent in H1:2017. “Furthermore, the net balance of businesses which believe access to credit is normal rose from 46.2 percent in H2:2016 to 50.6 percent in the current period.”
The survey indicates that sentiment amongst business regarding the rising cost of inputs remains very strong, greater under current survey than in the previous one. “For utilities, the strong expectation of rising costs is in line with increased water and electricity tariffs implemented during the survey period.” It further notes that the upward trend in cost of inputs continues for the 12-month period from H2:2017 to H1:2018, except for utility and other costs, perhaps reflecting that businesses do not expect utility costs to rise again in the near future.